Monthly Archives: November 2008

Platina’s Quarterly Report: More Questions Than Answers

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PLTG’s quarterly filing finally made it to Edgar late last week, and I had a chance to run through the report this morning.

On the good news front, this is the first quarter the company has actually generated revenues, albeit a far lower number than I was led to believe and hoping for.

Revenues were $123,000. That’s a miniscule number for a public company, but it compares quite favorably with the virtual zero they had before.

When I first interviewed the CEO in June, he told me he felt the company might be able to generate $1 million per month by this time. Clearly- not even close.

One mitigating circumstance is the price of oil and natural gas. NG has been cut in half, and oil is cut down to 1/3 of where it was. Has commodity prices held, they might have done much better. These price drops did not help.

The other challenge the company is experiencing is a delay in bringing all ten of their wells on line in a timely manner. Whether this is temporary or a much larger challenge, I can’t say.

The stock price is in the absolute toilet on this one. I believe there are three major issues. The first is- of course- the overall market. It has been terrible and has hurt all equities- especially resource companies.

Secondly- dillution could be playing a major role in the problems with the stock itself. The company has issued a series of complicated convertible preferreds, and a number of preferred holders converted to common stock. It’s tough to quantify, but it could explain the exacerbated supply.

Thirdly- more dillution. The shares I&O went from 150.6 million to 188 million in one quarter. That’s 25% dillution in three months. I don’t know how many, but I’d bet my bottom dollar a bunch of those shares were sold indiscriminately into the markets, forcing the price down.

If review the 10Q, you will recognize PLTG has a history of paying for all sorts of things by issuing stock. Lawsuits have been settled that way, drilling rights have been acquired, consulting services have been paid for, interest payments on loans- all paid for with stock- hence the massive dilution.

This can be a good strategy for a small company looking to get started, but it can backfire in brutal market conditions. I believe that’s the case here.

The bottom line on PLTG- hardly worth selling at one penny. If it’s going to be a tax loss sale, you can always take your losses later in the year.

According to the financial statement, the company has nearly $8 million in “unproven reserves”, but CEO Merriam believes it is a lot more.

Oil and gas prices are likely to go up from here, and the company has to get all of their 10 wells online and producing revenues.

I would not be a buyer quite yet. I’d like a little more clarity on more operational wells, and I’d like the company to stop issuing stock in such massive quantities.

I would just characterize this one as a hold for now, and give them the benefit of the doubt. In general, things are likely to get better from here, but you never can tell for sure.

Comments and questions are welcome.

Nighthawk Quarterly Numbers Pretty Good- No Major Negatives

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I just had a quick look at the NIHK Q3 numbers, and there weren’t any big negatives to sabotage the recent move in the stock, which is what I was hoping for.

Let’s start with some really good news. From the June quarter to the September quarter, the number of shares I&O barely budged. 137 million to 138 million. This suggests the stock will be able to move up fairly easily as volume comes back in- as we saw last week.

The top line- $850k, was up about 10% from the June quarter, and up about 250% from the same quarter last year. It’s a small number, but it’s great growth.

The company is still losing money, but it’s a pretty small amount, and they should be able to move towards cash flow positive and then profitability if sales continue ramping up out of the new Itron relationship.

Cash continues to be a weak point, but it was far better than last quarter where they ended with just over $30k in the bank. This time, they ended the quarter with $142k in the bank. Again, a small number, but a substantial improvement.

I’m very pleased to see the company is not in some sort of weakened financial condition. Some big set top box orders and/or business flow out of the Itron relationship would be just what the doctor ordered.

China Energy In Uptrend: One of the Few

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CGYV is in a confirmed uptrend based on today’s action in the stock.

The company delivered an awesome quarterly report, and the Westly connection with the company is staring to come out. It’s not surprising investors want to own the same shares of a company owned by the guy who is likely to become the next Secretary of Energy-and, own them at a lower price.

Technically, here’s what everyone should be looking at:

As you can see, another big volume day took the stock up very nicely. It traded to a high print of $2.25 today, much more than a double from the all time low.

Also- note the stock is surging on high volume days, and pulling back on low volume days.  In short, the highs are getting higher, and the lows are getting higher. This suggests accumulation. The stock is quite volatile on any sort of volume as there aren’t a lot of forced sellers anymore- they seem to be all cleaned out.

The last big surge took the stock from under $1 to over $2 in two trading days. This one took the stock from $1.50 to $2.25 in one trading day. Nice move.

It pulled back in the last couple of hours of trading, and ended up right on the 38.2% retracement line.

As it stands right now, $1.80 would be the ideal place to accumulate, but you might have to settle for the closing level of about $1.95. If you don’t own it yet, I would take a partial position at the current, sub $2 level, and keep your powder dry for a move down to $1.80 in case it gets there.

The performance of this stock is a rare treat in this environment. It’s tough to find anything in a confirmed uptrend.

Comments and questions are welcome.

Pickle Quarterly Numbers In: No Big Surprises

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Spicy Pickle filed its 10Q quarterly financial filing yesterday, and there were no big surprises. Just as I suspected, top line numbers were up quite dramatically on a percentage basis, and the company continued to lose money.

Cash levels at the company are higher than they should be so action needs to be taken to either increase gross profits, lower costs, or raise money. In fact, what is likely to happen is some moderate combination of the three.

Here’s the story. SPKL delivered $1.4 million in revenues for the quarter. That’s up from $261k in the same quarter one year ago, or an increase of 424%. That’s a huge increase. It’s also about $200k higher than the previous quarter.

Losses came in at $1.3 million for the quarter, but as usual a bunch of the loss is paper loss- not cash flow loss. Of greater concern- at the end of the quarter, the company had about $800k left in cash. They really burned through about $1.1 million in the quarter.

In short, they have to slow their burn rate, or they simply won’t be around. Revenues will continue to rise, but expenses have to come down.

They are back on the expansion track now. Two new lease signings recently occurred, and there are a number of others just around the corner. I expect a number of new locations open by end of Q1 ‘09. Their Canadian subsidiary is starting to get traction as well. The September/October economic shock is wearing off, and things are getting back on track.

In the case of Spicy Pickle, the company came into 2008 geared up to open a new location about 3 to 4 times per month. The expansion just wasn’t there, then the recession hit. Now, adjustments need to be made.

Here’s an excerpt from the 10Q I find revealing about their direction:

“Our need to raise additional equity or debt financing and our ability to generate cash flow from operations will depend on our future performance and our ability to successfully implement our stated business and growth strategies. Our results of operations will also be affected by prevailing economic conditions. Many of these factors are beyond our control. If our working capital is insufficient to fund the implementation of our business plan (due to a change in our plans or a material inaccuracy in our assumptions, or as a result of unanticipated expenses, or other unanticipated problems), we will be required to seek additional financing sooner than currently anticipated in order to proceed with such implementation. In the event that we need additional capital and are unable to obtain it, we could be left without sufficient liquidity. We have the ability to reduce our overhead to meet the revenue flow from existing franchised restaurants. We are currently assessing the cuts that may be needed in future periods.”
It’s really a shame they got hit with this recession just as they were gearing up for major expansion. They had sold the franchises, they just needed a little more time.

I suspect the current recession is going to cost the company about a 12 to 18 months to get back on the 2007 growth track. The first half of 2008 they overspent relative to growth. In the second half of 2008 they will downsize considerably. In the first half of ‘09 they will deliver moderate growth, much lower expenses, and perhaps raise some capital. In the second half of 2009 they will get back on track, and become the company I was looking for in 2007.

So- here’s the short version. It’s going to be impossible to predict how the stock will trade for the rest of this year and into 2009. From the second half of 2009 on, it’s going to be a great stock to own. If they really ratchet down expenses, it could go up on that news. Once they accomplish reducing expenses, they will become more of a value play, then go on to become a growth story once again.

That’s how I see it. Of course, it is possible they could close their doors. In my view, not likely as they have recurring revenues, and who would walk away from that?

Comments and questions are welcome.

Hats Off To Nighthawk on Deal with Behemoth Itron

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Just when it looks like the world is simply going to fall apart, something good happens to make your day. The last two months have been about as bleak as it gets, so today’s surprise news announcement out of NIHK was a welcome diversion from the mess that is our markets.

Today, just before the market opened, NIHK’s CEO Doug Saathoff announced behemoth Itron (NASDAQ: ITRI), the single largest meter provider for utilities in the US, has agreed to include the NIHK remote disconnect technology as part of their product offerings.

This is really major, market moving news. I love it. Long term followers of NIHK will recall the company has been in an arrangement with Verizon in the past that kind of fizzled.

However, I don’t think this arrangement will fizzle the same way. NIHK has been selling it remote disconnect power units to the utility industry for year. The Verizon use was a different application using the same technology.

Itron should be different. Itron is already in the business of enhancing the technology associated with meter reading. They are the 1200 lb guerilla in the business of remote meter reading. They own almost 50% of the market for remote meter reading- they can read the meters and figure out your bill remotely- they just can’t turn the meter off remotely. By adding the NIHK solution, now they can.
I hate to point this out, but as we move deeper into this ugly recession, utilities are going to want to lower costs by investing in remote meter reading, and are going to need to shut the power down in a lot more buildings.

This is probably going to lead to a substantial increase in sales in the remote disconnect business for NIHK.

The market is getting it right- the stock is responding in kind today. Here’s the chart at 10:00 Pacfic Time.

As you can see, the stock has already returned to September levels just today, and is trying to grind it’s way through $.04 on its way to $.05. This is a pretty nice development when one considers the stock was under $.02 in the last month.

NIHK demonstrates what can happen in microcaps when they are this blown out. They can trade up pretty nicely on light volume as there are simply fewer shares for sale.

This is really welcome news, and it’s nice to see the stock getting some legs.

Now, I’m even more interested in looking at the company 10Q filing. I hope I see enough positive stuff on the both the income statement and the balance sheet to become really optimistic.

In case you’re wondering, ITRI delivered nearly $1/2 billion in revs last quarter, and today’s news appears as an ITRI release as well.

If this gels into something substantial, I wouldn’t be surprised to see the stock back at $.10 in 2009.
Comments and questions are welcome.

All Quiet on the China Front

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CGYV popped its big news pre open today, and so far it’s a bit of a non event on the trading front in terms of price movement. However, the lack of price movement tells you a lot.

CGYV has delivered a fantastic move over the past two trading days. It doubled off Tuesday morning’s low print of $.90, and traded as much volume in the past two days as the last three weeks combined. Someone was buying the stock, and buying a lot of it.

Today, the news of their monster new contract came out pre open. Great stuff. Little doubt the last two day run up was about this news as well as the high volume stop and reverse technical move.

Here’s the chart about 40 minutes into the trading day:

As you can see, the stock has given a little ground. Far more important that the price movement is the volume. So far today, it has only traded 31,000 shares- as compared to 300,000 and 500,000 over the past two days.

Clearly, this was a “buy the mystery” rally. What’s missing is a “sell the history” sell off. The buyers of the last two days so far don’t appear to be ready to pull the trigger on their profits yet.

I suspect those buyers are looking for much higher levels, which is a great technical sign. Nevertheless, since the stock is not trading up on today’s news, one needs to look for a pullback to accumulate.

Your 38.2% retracement would take the stock back to about $1.52. If it gets there, I strongly recommend jumping in for at least a partial position. $1.28 would be ideal, but that might be a bit of a stretch considering the damage that’s already been done.

Today’s volume tells me the guys with all the profits have no interest in selling. That says a lot.

Comments and questions are welcome.

China Energy: One Day Wonder, Or Momentum Change?

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CGYV’s one day massive move on huge volume was a nice surprise, but does it really mark a trend reversal, or was it simply on one day wonder that is likely to have limited follow through?

It’s a little too early to call.  There’s arguments both ways. I suspect it was the first day in what might have been a major direction change, but I only say that because the stock is so absurdly undervalued and the company is growing so rapidly. It makes sense. However, making sense is not enough in today’s world as irrational behavior abounds globally.

Since the stock is willing to back down on considerably lighter volume today, it makes sense to look at a chart for appropriate entry levels for those so inclined.

You can see the huge volume bar associated with yesterday’s dramatic rebound in the stock. Today, the stock is coming back down on far lighter volume, suggesting investor appetite to buy this stock has faded today from yesterday’s activity.

Perhaps there’s a little profit taking going on here from the $1 mark early yesterday. That’s a pretty attractive one day trade for those who were accumulating when the stock was quiet.

If you want to look at Fib retracements off the one day volume bar, I’ve included them. In the early going, the stock has delivered the first corrective leg- the 38.2% retracement. For those who are looking for a reasonably good entry level, $1.18 is your number. The price has already gravitated there.

If you are looking for the absolutely ideal entry level, $1.09 is your number. I don’t know if we’ll get there, but anything is possible in this environment.

Comments and questions are welcome.